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Monthly Archives: February 2014

See NRO where Governor Jindal has a nice list of things for the present administration to consider. It is a great list but unfortunately, it is the George Costanza opposite list rather than anything related to the current administration. The current administration is not interested in promoting Keystone or drilling or in restricting the IRS actions on conservatives. It also points out why the number of executive orders are less important than the nature of executive orders.

An ongoing discussion has been what to do as a small-g god. Would any of Jindal’s ten actions be worthy of a god? They are generally increases in freedom that can be solved by a few pen strokes. These actions need an election not a god.

Currently, pension boards use a rate of return based on the expected return for their invested assets. For instance, CalPERs assumes a rate of return of 7.5 percent, but since 2000, the actual average annual rate of return for the fund has been only 4.5 percent. Moreover, if pensions are indeed considered guaranteed (i.e. they are riskless), then a risk-free rate of return is more logical. Conference attendees, by almost a 9 to 1 ratio, agree that these two simple steps would be prudent for fiscally stabilizing pension funds.

So it appears that 90 percent of the folks at a Hoover Institution conference think the risk free rate of return (fairly close to zero right now) is a prudent way to report California pensions. Seriously, they need to think like accountants.

For a back of the envelope computation, lets say that the present value of the fund is a $100 billion and that amount will be paid out over 50 years. The amount of the annual payment would be $7.7 billion to exhaust the fund. We used two percent (surely too high) for the risk free rate of return. The present value of those same payments are $242 billion. It is not exactly what a pension fund will do but it provides a rough approximation. It is simple. If you use the risk free rate of return you will end up with a pension fund that is two, three, or four times too large. I know it is a useful scare tactic to make the unfunded liability look big but it does not make sense. No useful information is provided by the computation.

It is a whole different issue to argue about what the expected rate of return should be. Some entities use a rate that is too high and should be lowered but that has nothing to do with the argument for a risk free rate. The risk free rate is as inappropriate as 12 percent is.

The redistribution of income and employment caused by a big jump in the minimum wage are beyond MWG skills to model but our analysis comes down to we don’t want to order food from an iPad.

Ask and ye shall receive. The CBO is on the case, excuse me, the nonpartisan CBO is on the case:

Effects of the $10.10 Option on Employment and
Income. Once fully implemented in the second half of
2016, the $10.10 option would reduce total employment
by about 500,000 workers, or 0.3 percent,

It is not a dominate solution because many people benefit and some of them are poor. The net expectation is that 900,000 will get out of poverty and 500,000 will be out of a job. It seems to us that this is a terrible trade-off but utility functions vary. The amount that would go annually to families below the poverty level? $5 billion. Raising the minimum wage does hurt the rich, minus $17 billion, so people might support it as a pure envy play.

Josh Bersin and the Myth of the Bell Curve is an example of a bad argument that hurts his case more than it needs to. The Bell curve represents the outcome without intervention. So human height and IQ might reasonably be expected to conform to a Bell curve or a normal distribution. MWG could go on about IQ but it would distract from the story at hand. MWG believes that when individuals intervene in the process (like instructors at a university) then the outcome is less likely to be a normal distribution. We are positively disposed to agree with Bersin’s argument that human performance in organizations is not normally distributed.

The problem is that Bersin compares a distribution that have number of observations on the Y axis with one the has the total number of people on the X axis. Of course they look completely different. They are not comparable. If Bersin had told us that 20 percent of the people do 80 percent of the work then we would have recognized his sagacity. MWG agrees with Bersin but doesn’t find him convincing because of the bad argument.

EJ Dionne is trying increase unemployment for low paid workers again. As the left is unwilling to do this, he is calling on conservatives to support a minimum wage increase because a Republican from California once did. Amongst other reasons conservatives would favor it is that it is a massive stimulus. That is a massive ceteris paribus there. The redistribution of income and employment caused by a big jump in the minimum wage are beyond MWG skills to model but our analysis comes down to we don’t want to order food from an iPad. On the other hand as Dionne notes conservatives have good ideas about the earned income credit. It all goes to the poor. The best study Dionne can find has nearly half of the increase in the minimum wage goes to the poor. So let us think about this. Do we want the one that all the help goes to the poor or less than half the help goes to the poor? Do we want the one that puts the poor at risk for unemployment? If inequality of incomes is important to you then try to do something that would be useful.

Then Dionne goes on to say

Conservative politicians really need to ask themselves: If they refuse to raise the minimum wage and at the same time insist on cutting health care and wage-support programs, are they not consigning millions more of their fellow citizens to lives of poverty? Most Americans reject this view, and that includes most conservatives who believe in work, family and personal responsibility.

A more honest way to put this is that certain parties are trying to raise the minimum wage to benefit unions and others at the expense of the poor. Conservatives have been against this. They have also been against the destruction of the US health care system. They are for work, family, and personal responsibility because escape from poverty is difficult without these.

As we said earlier, what would we do if we were a small g-god and could implement one thing. It was tough to not choose the elimination of corporate taxes as the one time-one chance solution to improving the country. On the other hand, immigration solutions are easy to toss out. As the rules require that it is only one solution then the answer cannot be comprehensive reform. George Will has an uncharacteristically weak column supporting immigration reform. The growth issue about immigration is per capita GDP. If the population goes up by 100% on 1/1/15 and GDP goes up by 50% during 2015 then it is a bad deal on average for citizens. Since we rarely see the immigration argument including per capita data it seems unlikely that the impact is positive. Immigration largely a zero-sum game and that is why the dispute is so intense.

So MWG is eliminating all immigration solutions including exporting illegal aliens, stopping illegal entry, and setting magic numbers for future immigration as the one thing. Anything else is below even a small-g god. In fact, illegal entry has become so small that it is less relevant currently. An imposed solution will not get to the cultural and political agreement that is needed in this area.

Abortion is off the list too because it is the example of an imposed solution causing massive political and cultural problems. The one thing should address an area where the is some level of agreement and some level of expectations about future outcomes. Immigration and abortion are rejected because of the former and eliminating corporate taxes are eliminated because of the latter.

Bill Murray made the distinction between God and a god in Groundhog Day. MWG would like to make you a small g god. Somebody asked MWG what we would do if we had the power. The questioner had a long list. To make it interesting it should be one chance, one time, and it lasts for at least 20 years. It can be a law (or a negation of one – no more corporate tax), it can be a policy (nuke Iran), or enforcement of a current law or policy (the administration must enforce Obamacare as written) or anything that you can think of that some agency can do. It can’t be more than one. One will be enforced very strictly. MWG will start with one we rejected. The joy of the activity is the opportunity to conjecture about what else might happen.

Eliminating the corporate tax is a great idea but it is not the one. It is unlikely to be revenue neutral. The fallout from trying to make up for the corporate tax is uncertain. Since it will be asserted that this change is good only for the 1% that circumstances will conspire to encourage class warfare. It is a good idea but not the one picked by MWG.